London midday: Miners lead the decline as Brexit worries dent sterling

By Michele Maatouk

Date: Friday 09 Nov 2018

(Sharecast News) - London stocks were still firmly in the red by midday on Friday, with miners and oil companies under the cosh as investors digested a hawkish Federal Reserve policy statement, while sterling slipped amid fading Brexit deal hopes.The FTSE 100 was down 0.8% to 7,083.95, while the pound was off 0.3% against the dollar at 1.3021 and 0.2% lower versus the euro at 1.1471 after the Democratic Unionist Party said Theresa May's plans to keep Northern Ireland inside the customs union even without a deal "raises alarm bells".

The DUP, whose 10 MPs help to keep May's embattled government in power, have been angered by what they see as a breach of a promise over the Irish issue.

In a letter to the DUP, which was leaked to the Times newspaper, May said EU negotiators still wanted to see Northern Ireland in the customs union and single market whatever the outcome of talks.

"The PM's letter raises alarm bells for those who value the integrity of our precious union & for those who want a proper Brexit for the whole UK," said DUP leader Arlene Foster. "From her letter, it appears the PM is wedded to the idea of a border down the Irish Sea with NI in the EU SM regulatory regime."

Meanwhile, data from the Office for National Statistics showed that UK economic growth picked up in the third quarter despite coming in unexpectedly flat in September.

Gross domestic product grew 0.6% in the period from July to September compared to the preceding three months of the year, as economists had forecast after the 0.4% growth in the second quarter.

Compared to the third quarter last year, UK GDP was up 1.5%, picking up from the 1.2% year-on-year growth in the second quarter.

September's GDP came in flat compared to August, while a 0.1% improvement had been expected by the market. Services output in September was down 0.1% month-on-month and industrial output flat, but construction was up 3% and manufacturing up 0.2%.

Although Brexit uncertainty is being much cited by companies, a 1.2% decline in business investment from the second to the third quarter was unexpected, though household spending grew 0.5% to compensate.

Sam Tombs at Pantheon Macroeconomics said he still expects quarter-on-quarter GDP growth to slow to just 0.2% in the final quarter of the year. "The weighted-averaged PMI fell sharply in October, consumers' confidence has deteriorated again and many firms are warning that they are slashing investment at a faster rate. Accordingly, we still think the 30% probability that markets are attaching to a pre-Brexit increase in interest rates in Q1 is too high," he said.

Stocks had kicked the session off on the back foot following a hawkish post-announcement statement from the Federal Reserve, which stood pat on rates as expected on Thursday while signalling a rate hike next month and more next year.

The Fed left the funds rate unchanged at 2% to 2.25% and said it expects "further gradual increases" in the target range for the funds rate, depending on economic expansion, labour conditions and inflation. Notably, there was no mention in the statement of recent financial market volatility.

Miners were a drag, with Anglo American, Glencore, BHP Billiton, Antofagasta and Rio all on the back foot as metals prices took a hit from the stronger dollar, which was boosted by the hawkish Fed statement.

Oil heavyweights BP and Shell, plus mid-cap producers including Tullow Oil and Premier Oil, were in the red as oil prices extended the recent sell-off. Brent crude was down 1.4% to $69.65 per barrel.

"Oil has entered a grizzly bear market as the effect of Iran sanctions become better understood; critically it seems the impact on supply is far less than feared, in no small part to waivers," said analyst Neil Wilson at Markets.com, noting that crude prices are down around 20% from their October peaks.

Elsewhere, SSE slumped after the energy firm said its merger with npower will be delayed as the two parties renegotiate terms following the government's introduction of a price cap.

Shares in Informa bucked the trend to climb up off an eight-month low after the exhibitions organiser and business publisher said it remains on track for the full year, with underlying revenue up 3.9% in the first 10 months of the year.

Unilever was a high riser following a report in the South China Morning Post that the consumer goods giant might battle Colgate-Palmolive and Church & Dwight to buy Chinese consumer product company Weimeizi.

In broker note action, AA lost ground after a downgrade to 'underperform' by Credit Suisse, while Smurfit Kappa was weaker after a downgrade by Goldman Sachs. Hochschild Mining was lifted 'outperform' at RBC Capital Markets and Inchcape was boosted by an upgrade to 'buy' at HSBC.